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Friday, March 20, 2015

Markets surge on hopes for delayed interest rate hikes

Dow jumped 168 taking well over 18K but short of a record, advancers over decliners 4-1 & NAZ added 34 to go over 5K. The MLP index was up 2+ to the 424s & the REIT index jumped 8+ to the 347s. Junk bond funds gained & Treasuries also rose. Oil finally had a winner day, up more than 1, & gold climbed higher, heading for 1200 again.

Federal Reserve Bank of Atlanta pres Dennis Lockhart said the US central bank should begin to raise
interest rates in the middle of this year or later,
notwithstanding the impact of a stronger dollar. “I think liftoff in one of the meetings starting in June
through September represents appropriate policy, given what I
can see today,” he said. The FMOC has
scheduled meetings in Jun, Jul & Sep. “I have raised my level of concern about a strong dollar” & its impact on net exports & growth, said Lockhart, a
voting member of the FOMC this year, although he balanced the
remark by noting that the currency changed his view to a modest
extent & was “not a game changer.” Fed Chair Janet Yellen acknowledged after the FOMC meeting that a strong dollar was a
headwind for US exports, while also reflecting a stronger US
economy. Lockhart said he has cut his forecast for growth this year
to reflect a weak Q1, while “not substantially”
changing his forecast for the federal funds rate at year end but he
didn’t give specific numbers. “I didn’t dramatically change my basic narrative of how
the economy will evolve,” he said. “I see a continuation of
moderate growth” that is “broadly in the range” of 2.5-3% in 2016 & 2017. Officials cut their estimate for the federal funds
rate at the end of 2015 to 0.625%, compared with 1.125% in Dec forecasts. The 2016 estimate fell to 1.875% from 2.5%, according to the FOMC. “The economy is throwing off quite mixed signals,”
Lockhart said. While employment has shown
“continued strength,” he added, “the inflation numbers show
weaker data than hoped for. Manufacturing is another sector we
are seeing somewhat weak numbers.” In addition, housing “is
not hitting on all cylinders by any stretch of the
imagination.

Pro-Russian rebels in eastern Ukraine are
preparing for a new offensive to expand their territory,
signaling a 6-week-old truce is in danger of crumbling. “We’ll try to push them from here to hell because we’re
tired of them killing civilians with indiscriminate fire,”
Alexander Khodakovsky, who commands the 3500-man Vostok
Brigade, said.
The campaign may start in the “foreseeable future,” according
to Khodakovsky, who also heads the security council of the self-proclaimed Donetsk People’s Republic. A rebel offensive would shatter the cease-fire negotiated
last month in Minsk, & raise the risk of escalating
UA & EU sanctions against Russia, which they
blame for stoking the conflict. Ukraine & Germany, which
brokered the accord with France, are calling for fresh talks as pres Poroshenko’s govn & the insurgents
accuse each other of violations. Ukraine’s army is digging in to defend the key port of
Mariupol, which NATO views as a key objective in any rebel bid
to create a land bridge from Russia to Crimea. The Sea of Azov port
city, home to half a million, is the largest gov stronghold between separatist-held territory & the Black Sea peninsula. The EU pledged to prolong the bloc’s sanctions against
Russia for backing the uprising, which has killed more than
6K & devastated Ukraine’s economy. The truce, while imperfect, has helped reduce violence &
mitigate the threat of further penalties. German Chancellor Merkel said that the EU
would consider imposing further punitive measures if there’s a
major violation of the cease-fire. The sanctions & collapsing
energy prices sparked Russia’s biggest currency crisis since
1998 & put the nation on the brink of recession.

The Department of Interior finalized new rules
to govern drilling on federal land using a process known as fracking,
including new measures to protect groundwater. The rules, the culmination of a 4-year process, will affect over
100K oil & gas wells on federally managed lands, 90% of
which use the hydraulic fracturing technique. It requires operators to validate well integrity & maintain strong
cement barriers to prevent oil leaks into water supplies; requires firms
to disclose the chemicals they use; strengthens standards for storing
waste fluids & requires companies to submit more information before
drilling.

The much watched Baker Hughes report showed that weekly oil & natural gas rig count last week was down 56 to 1069. This figure was almost 2K in Oct, a vivid reminder how low priced oil has clobbered the drilling industry. Dow is essentially at record levels while NAZ after 15 years has cracked thru the 5K ceiling. These indicators suggest there is plenty of good news out there. Not so, but it's fun to watch the averages keep climbing.